Yellen & Low Rates—Both Back In Fashion

Facts are stubborn, but statistics are more pliable.”—Mark Twain

As anyone who has visited a national landmark knows, the view from outside the structure is almost always considerably different—and often less complex—than the one found inside.

So it is not entirely surprising that President Trump’s “view” from the Oval Office of the Federal Reserve—including that of its chairwoman, and the level of interest rates that she and her colleagues decide upon—is now considerably different than the view he espoused for months during the 2016 election campaign.

A standard part of Candidate Trump’s campaign stump speech included his plans, if elected, to replace Federal Reserve Chairwoman Janet Yellen, often accusing her during campaign speeches of artificially keeping interest rates low for political reasons.

However, that was ‘then’, and this is now.

Since arriving in the Oval Office, President Trump has had to revisit numerous campaign positions and has, in several cases, had to revise or at least revisit previously enunciated policy positions. Both the Fed Chair, and her body’s low interest rate policy, appear to be among those Trump campaign positions subject to revision.

In a recent interview with the Wall Street Journal, the president who had previously been critical of ‘artificially low’ interest rates, stated that “to be honest, I do like a low-interest rate policy”; in addition, his view of the Fed’s chairperson has also apparently evolved. Speaking about Janet Yellen, Trump said “I like her and I respect her”, adding that he had not yet decided whether she should be re-nominated to her position when her current term expires next year.

Still, it’s also worth noting that even as a candidate, Trump had also previously taken note of the numerous economic benefits derived from low interest rates, and the positive ripple effect that they have throughout the US economy.

Since Trump’s election to the presidency, the Fed has raised interest rates twice—once in December, and then a second time in March. Indications have been that there would be additional interest rate hikes forthcoming throughout the year.

However, there are numerous factors that will likely come into play as the Fed reviews its options, and considers the pros and cons of moving forward with additional hikes to US interest rates.

A surprisingly disappointing report on economic growth during the first quarter of this year may well impact the Fed’s opinion on the benefits—or necessity—of additional hikes to US interest rates. The US economy grew at its slowest pace in three years during the first quarter, a dismal 0.7 percent growth, despite an increase in investment that was led by the housing and oil sectors.

Equally troubling for economic observers was the fact that consumer spending—the largest part of the US economy—rose by only 0.3 percent in the first quarter; that marked the worst performance since 2009, during the height of the Great Recession.

While economists always are quick to point out that no one should read too much into a single Quarter’s economic performance, several economic experts also added that weak first quarter growth was to be expected and not, necessarily, a sign of economic stagnation.

The general economic consensus is that it is highly unlikely that poor a performance by the US economy in the first quarter alone will dissuade the Fed from moving forward with its plans to increase interest rates during the second half of this year.

As for Ms. Yellen’s future at the helm of the Federal Reserve, her job also appears to be ‘safe’ in the president’s eyes—at least for now.